Middle East Conflict Could Strain India’s Economy If Oil Supplies Are Disrupted: Moody’s

New Delhi, Mar 6 (KNN) India could face pressure on the rupee, higher inflation and a widening current account deficit if the escalating Middle East conflict pushes up energy prices and disrupts supplies, according to Moody's Ratings.

The agency said India stands out among large Asian economies that depend heavily on crude oil and liquefied natural gas (LNG) imports from the Middle East. About 46 per cent of India’s oil and gas requirements are sourced from the region, PTI reported.

Strait of Hormuz Disruptions Raise Risks

Supplies have been affected as the widening West Asia conflict has disrupted shipping through the Strait of Hormuz, a key conduit for crude oil and LNG exports. Shipping through the strait has largely stalled and some regional ports have suspended operations, affecting trade in oil and LNG.

Moody’s said costly energy imports could weaken the rupee, push up inflation, widen the current account deficit and complicate monetary and fiscal management, particularly if the government expands subsidies to cushion the economic impact.

Global Energy Markets at Risk

The rating agency warned that the conflict poses a significant risk to the global economy if disruptions in energy markets persist. While infrastructure damage so far has been limited and global inventories provide short-term buffers, prolonged disruption in navigation through the Strait of Hormuz could trigger supply shortages.

Such a scenario could push Brent crude prices above USD 100 per barrel, leading to higher inflation, tighter financial conditions and slower global growth.

Baseline Scenario: Short-Lived Disruption

In its baseline scenario, Moody’s expects the conflict to be relatively short-lived and navigation through the Strait of Hormuz to resume soon. Under this assumption, Brent crude prices would average USD 70–80 per barrel in 2026, only moderately higher than the USD 69 per barrel average in 2025, limiting the impact on global growth.

Adverse Scenario: Oil Above USD 100

However, if disruptions persist and Brent prices remain above USD 100 per barrel, energy-importing regions such as Asia and Europe would face significant strain. Higher energy costs would raise consumer prices and production costs globally, erode household purchasing power and weigh on investment.

Persistent inflation risks could also force major central banks to keep interest rates higher or even raise them further, tightening financial conditions and slowing global economic growth, Moody’s said.

(KNN Bureau)